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What might replace furlough? (And how likely is this?)

15 Sep 2020 By Jonathan Owen

Many are calling on the government to extend the job retention scheme or look to other options. People Management rounds up these proposals and asks experts how they could work

The job retention scheme, the economic equivalent of shielding that has helped keep 9.6 million people in work since it began eight months ago, is set to end in just a matter of weeks. Yet when the scheme finishes at the end of next month, the removal of the subsidy from businesses still reeling from the effects of Covid-19 will see a surge in redundancies, according to experts.

Former prime minister Gordon Brown has likened it to a “tsunami of jobs” lost, and last week the Treasury select committee called for a "targeted" extension of the furlough scheme.

ONS data out today has highlighted major job losses even during furlough, with 695,000 jobs cut since March. And things are set to worsen, according to a new analysis by the Institute for Employment Studies, which warns that job losses could exceed 700,000 in the coming months. 

Labour leader Sir Keir Starmer today (15 September) urged the government to find a way of extending support for those firms that need it, warning of the "scarring effect of mass unemployment" if it fails to act. His concerns echo those of the Institute of Directors, which has said that “some form of an extension to the furlough scheme should remain on the table”, and the Confederation of British Industry, which has argued that “it’s too soon to pull business support away at the end of October”.

So what alternatives to the current scheme have been mooted? How likely are these to be adopted by the government? And how should HR respond if not?

What are the suggested alternatives to the existing scheme? 

There are a number of changes to the existing scheme that would enable it to be extended for a number of months, according to the CIPD. In one scenario, it would be extended to next March at a level of 60 per cent. Another would see any extension restricted to specific sectors. A supplemental wage subsidy at 70 per cent on hours worked is another option.

The stakes are high, with the Institute for Public Policy Research having said that up to two million at-risk jobs could be saved by extending the furlough scheme. In a report released last month, the think tank called for a coronavirus work-sharing scheme that would encourage firms to keep employees in work through a part-time work subsidy and an extension of the current furlough scheme until next March.

Last week the Joseph Rowntree Foundation called for a temporary sector-specific furlough scheme to avoid a surge in unemployment in sectors such as hospitality, retail and beauty.

And the CBI is arguing for a replacement scheme to support struggling companies to bring back staff on at least a half-time basis.

Another alternative, proposed by the Resolution Foundation, would see the furlough scheme  changed so that the government subsidises the wages of workers going back to work part time, as well as the current furlough scheme extended for specific sectors.

How likely is the government to adopt any of these?

However, Gerwyn Davies, public policy adviser at the CIPD, says government appetite to implement any of these options does not seem strong. “I am not sure any of these options are likely,” he says. “The government sees the job retention scheme and six-month work placements for young people as the key way of tackling youth unemployment in particular, which as this morning’s figures show is rising sharply while other age groups (with the exception of older workers) are faring relatively well.”

“Given that some sectors are nowhere near operating at full capacity, there is a strong case for a short-time working subsidy for the worst-hit sectors over the winter,” he adds, regarding options that might be considered more viable by policymakers. This would provide time-limited support for firms facing a temporary decline in demand to retain jobs that have become unprofitable in the short term but are likely to remain viable in the medium term, he explains. 

What is likely to happen with the current furlough scheme?

As things stand, the furlough scheme ends on 31 October. But it’s worth remembering that (often very welcome) U-turns have arguably characterised the government’s response to Covid-19.

There is currently no job subsidy scheme to replace furlough, although the £2bn Kickstart scheme announced earlier this year will cover the costs to employers of offering six-month work placements for young people aged 16-24 on universal credit who are at particular risk of long-term unemployment.

Chancellor Rishi Sunak is sticking to his guns, for now. In a statement today, he said: “This is a difficult time for many as the pandemic continues to have a profound impact on people's jobs and livelihoods. That's why protecting jobs and helping people back into work continues to be my number one priority.

“We've taken decisive action throughout this crisis, introducing the furlough scheme and outlining a comprehensive plan for jobs to support, protect and create opportunities. And we'll continue to do that through the autumn, including by supporting people back to work through policies such as our job retention bonus worth up to £9bn."

Whatever happens next, companies are “desperate for some certainty around what will happen after the 31 October, whether or not that involves extending the furlough scheme”, according to Jeanette Wheeler, HR director at MHR. “An assistance programme of some variety is required to give companies the time to build their business and get back on their feet, as opposed to closing them completely and making mass redundancies, which currently many may feel is their only option,” she says.

And Dan Tomlinson, senior economist at the Resolution Foundation, says: “With official projections from the Bank of England and the OBR suggesting a post-furlough unemployment rise of between one and two million, that scale should surely prompt the government to extend support after October over and above its current policy of a job retention bonus.

“Whatever policy support is ultimately agreed, the key is for it to focus on the hardest-hit sectors, such as firms in the hospitality, arts and leisure sectors, which continue to be hampered by ongoing public health guidance.”

However, Fudia Smartt, partner at Spencer West, predicts mass redundancies could still be on the cards for autumn unless government decides to fund 80 per cent of furloughed employees’ wages again: “I suspect that even if they do extend it a lot of employers will press ahead with redundancies because unless the government is going to cover the bulk of it like they did initially, many businesses are still saying they can't afford the 20 per cent plus pension and NI and holiday pay, particularly if they’ve got no work for their people to do, or very little work.”

How might HR teams avoid job losses otherwise?

Cuts to pay and bonuses, as well as temporary layoffs and reducing working hours, are among the measures that HR teams have been taking to help stave off redundancies, according to the CIPD’s Labour Market Outlook for summer 2020. Four in 10 (38 per cent) employers have introduced new or more flexible working arrangements, while half (54 per cent) have made temporary layoffs. And one in four (23 per cent) have introduced short-time working.

“Short-time working initiatives can be a very effective temporary measure to maintain employment where redundancies would otherwise have taken place,” says Davies. “It should be one of the many tactics used by employers to avoid or minimise redundancies.”

Smartt says: “The usual employment rules apply – they will need to get the agreement of employees.” But, in the current climate, securing the agreement of employees might not be too difficult “because any job is better than no job”, she adds.

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